With the hustle and bustle of everyday business life, business owners sometimes forget about little things, such as corporate record maintenance. Managing your corporate affairs should also include corporate record maintenance, and in particular the legal aspects of maintenance.
There are many seemingly simple changes that occur during a corporation’s life cycle. Examples include officers and directors changing, different accountants preparing the fiscal financial statements, changing of registered addresses of the corporation, and adjustments in shareholder structure. Provincial and federal corporate legislation requires that each of these events be specifically recorded in the corporation’s Minute Book. Some of these events must also be reported to the Companies Office of Manitoba (or Industry Canada if the corporation is a federal corporation).
If a corporation’s Minute Book is not up to date, transactions may be delayed until the Minute Book is suitably updated. For example, a corporation attempting to sell shares or obtain a corporate loan may experience delays if the Minute Book is deficient. These investigations take time, as missing records will need to be prepared prior to the continuation of the transaction. These delays can be compounded if there is any difficulty obtaining accurate information, for example if a shareholder has died or left. Additionally, in the event of a breakdown between the shareholders, accurate corporate records can help a corporation avoid claims. For example, one shareholder or director claiming they were unaware of certain actions being taken by other corporate actors. In short, keeping corporate records up to date is both legally required and provides certainty in critical situations.
Below is a list of some items that should regularly form part of your corporate records and be kept in the corporation’s Minute Book.
1. Annual shareholders meetings – where the directors of the corporation are elected, financial statements for the preceding fiscal year are presented to shareholders, and either auditors of the corporation are appointed or waived. For many small corporations, the transactions of such business often does not warrant an actual meeting. In such cases, our corporate legislation provides that shareholders may be permitted to sign resolutions in writing approving the annual resolutions in lieu of an actual meeting, provided that all resolutions are signed by all of the shareholders of the corporation (whether voting or non-voting).
2. Special meetings of shareholders – where special meetings of shareholders are held in between annual meetings in order to transact specific business, the minutes of such meetings or resolutions in lieu of meetings should also form part of the corporation’s records.
3. Directors meetings – corporate legislation provides that after incorporation, the directors of a corporation are required to meet annually in order to appoint officers of the corporation and to approve the financial statements for the preceding year. Once again, in lieu of a meeting, directors are permitted to sign resolutions in writing setting out the information required to be transacted in lieu of a meeting, provided all resolutions are signed by all of the directors of the corporation.
4. Corporate annual returns – after incorporation, legislation requires that a corporation file annual returns following the anniversary date of incorporation each year. The annual return provides confirmation to the Companies Office of several things. Firstly, of the shareholders that hold more than ten percent of the voting shares, and secondly, it provides the names and addresses of the directors and officers of the corporation who would be required to accept service of any pending action. In the event of changes in any year, this information would be provided on the annual return directly to the Companies Office. Failure to file annual returns for two years can result in the dissolution of your corporation, therefore it is extremely important that this matter be kept up to date.
5. Registers – Corporate legislation requires that the corporation maintain an accurate list of both past and current directors of the corporation along with their addresses and the date upon which they became or ceased to be a director. This information may become critical in the event that an issue of director liability arises during the specified period of time. In addition, the legislation also requires that a record be kept which includes the name, address, and number and class of shares that any particular shareholder holds, as well as the date of issuance of such share. An up to date transfer register should also be kept in the Minute Book.
6. Dividends or bonus transactions – this is a record of dividends or bonuses that were authorized by directors and ultimately serves as support for tax returns filed by the corporation. If the corporation is ever audited, properly recorded resolutions or minutes in the corporation’s Minute Book will assist in proving that all matters reported in connection with the corporation’s tax position were sanctioned. In addition, there are certain formal requirements of notice and filings to be given for eligible and capital dividends.
7. Significant transactions – corporations engage and approve various transactions throughout any given period. Such transactions can include the purchasing of properties or significant capital assets, the purchasing or sale of shares in other corporations, and various large investments, as well as the borrowing of money from a financial institution. These significant transactions should be documented by resolutions. In addition, a lending institution will ask for a form of resolution of the corporation’s directors approving the borrowing to ensure that the loan transaction has been properly authorized.
We often like to think of a corporation’s Minute Book as its diary or its story from creation to dissolution. The Minute Book should accurately reflect the transactions and events that have occurred so that third parties such as purchasers, lenders, accountants, and the Canada Revenue Agency can rely on it.
In the event that you believe your Minute Book is deficient, please contact us to it and we will suggest ways in which it can be brought up to date. For more information or questions about corporate minute books and record keeping for a specific situation, please contact us.